Taiwan Feeling Pain of China’s Tiff With WTO

TAIPEI, Taiwan

When NATO bombs hit the Chinese Embassy in Belgrade last month and derailed the mainland’s effort to join the World Trade Organization, one of the unintended victims of the fallout was Chen Yi-si.

Chen, a Taiwanese shopkeeper, fears that his government’s decades-long effort to join the WTO--thought to be near realization--will now be stymied because Taiwan is unlikely to be admitted until after mainland China, Taiwan’s longtime political rival, gets into the organization.

And with each passing day of stalled talks and angry rhetoric, the mainland’s chances of entering the global trade group grow dimmer.

“That’s not reasonable at all,” said the 54-year-old shop owner, who supports WTO membership for Taiwan because it would lower the cost of imported goods. “Politics is politics, the economy is the economy. You can’t just mix them forever.

“Let’s say mainland China couldn’t get into the WTO forever,” he added. “Does that mean Taiwan couldn’t join the WTO forever too?”

This skirmish over Taiwan’s WTO entry is the latest manifestation of the decades-long dispute between officials in Taipei and Beijing over the broader question of who is the rightful ruler of China.

Time is running out. By the end of July, Taiwan hopes to have fulfilled its requirements to join the WTO, including agreements to significantly lower tariffs, remove government subsidies and dismantle lucrative monopolies.

If politics intrude, however, and Taiwan isn’t admitted to the WTO by this November’s ministerial meeting in Seattle, the 134-member trade group is expected to toughen the rules for entry and possibly send all would-be WTO members back to the negotiating table.

That would be particularly disheartening for Taiwan, which has spent nearly a decade seeking membership in the powerful trade group as a road to greater political legitimacy and increased economic self-sufficiency.

A seat in the WTO would give this island nation, the world’s 14th-largest economy, a voice in setting global trade rules, freer access to export markets and access to the WTO dispute settlement process to resolve problems with its trading partners.

“We don’t want to be a bystander [to the WTO],” said Henry Yang, a director in Taiwan’s Board of Foreign Trade. “We are more than qualified to join this organization.”

Taiwan’s dilemma creates an awkward situation for the U.S. government, which is torn between an official policy that recognizes Beijing as the official government of China and Washington’s belief that Taiwan’s WTO membership should be considered on its own merits, irrespective of the mainland’s situation.

U.S. officials argue this does not violate their “one-China” policy because Taiwan is applying as a “customs district” and not a country.

“Our formal position is when Taiwan is ready, it should get in,” said Richard Bush, managing director of the American Institute in Taiwan, which acts as the unofficial U.S. embassy in that country.

But challenging mainland China on this high-profile issue could have serious consequences for the already wobbly U.S.-China relationship, given Beijing’s sensitivity to the Taiwan question.

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Even with U.S. support, Taiwan would have a rough time persuading the majority of the WTO members to take its side, given Beijing’s growing influence on the world stage, according to a U.S. official who spoke on the condition he not be identified.

“The question is, what lengths will Beijing go to block Taiwan and who else will support them?” he said.

For the U.S., whose firms already export 50% more to Taiwan than to mainland China, bringing Taiwan into the WTO would bolster a $50-billion two-way trading relationship and increase its attractiveness as an investment destination. The best opportunities are seen in agriculture, telecommunications and financial services.

Others countries are also pushing for Taiwan’s WTO entry. Paul Scholten, manager of the Amsterdam-based ABN Amro Bank’s operation in Taiwan, said European firms are particularly interested in Taiwan’s promises to open up its bidding process for government contracts, liberalize requirements for foreign lawyers and open up the banking and insurance markets.

But Scholten was careful not to take sides in the WTO accession dispute, given the importance of both the mainland China and Taiwan markets to Europe.

“We would like to see rapid accession to WTO for Taiwan, but we’re not a political organization and those things are outside our control,” he said.

Taiwan’s leading firms are losing patience. Tsai Horng-ming, executive secretary of the Chinese National Federation of Industries, said the vast majority of his organization’s members believe WTO membership will boost business by lowering the costs of imported raw materials and commodities and easing barriers to exports.

Over the last two decades, Taiwan has dramatically increased its global competitiveness. It has become much more of a high-tech exporter--now ranking as the world’s third-largest seller of information technology products--and is far less reliant on heavy manufacturing. Many of the country’s manufacturers have moved their operations across the Taiwan Strait to southern China.

Not that WTO membership is without its penalties for Taiwan.

The biggest down side would be the impact on Taiwan’s farmers, who are expected to suffer a 15% drop in production in the six years following WTO entry, according to Tsai.

The Taiwan government has offered subsidies to farmers to quit the business but has not had many takers, said Yang, the trade official.

“Farming is a family business and they are very reluctant to set this aside,” he said.

Those farmers who don’t find other work are likely to face fierce competition once the market opens up, given the openness Taiwan’s consumers have already shown to U.S. produce. Taiwan is a leading purchaser of Washington apples, California peaches and grapes and Midwest grains.

Meanwhile, Taiwan officials have felt some anti-WTO backlash triggered by their recent announcement that they planned to triple the price of michiu, a popular cooking wine whose price and production is controlled by a government liquor monopoly.

The U.S. and Europe had argued that the monopoly should be dismantled and products such as michiu should be taxed on the basis of alcoholic content, regardless of its use.

Overnight, the WTO was catapulted from obscurity onto the evening news as homemakers stormed the local stores and restaurateurs took to the streets to protest the unexpected price hike. Michiu disappeared as shopkeepers began hiding bottles to sell at inflated prices later.

Taiwan officials refused to back down, threatening to fine any store owners caught hoarding the cheap cooking wine, which previously sold for about 72 cents a pint. However, in an effort to appease the public, the government also announced it would soon begin producing a cheaper, salty version of the popular cooking wine.

The michiu controversy created a headache for shopkeeper Chen, who was besieged by customers trying to buy up as much of the cooking wine as possible before prices went up. He was finally forced to ration his monthly allocation of michiu. Loyal customers can buy up to 10 bottles, occasional visitors just two.

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Though many of Chen’s customers grouse about the michiu price hike, he remains convinced Taiwan will, in the long run, be better off when alcohol production and other lucrative parts of the domestic economy are no longer in the hands of the government.

Chen looks around his small shop in Pei-tou Town, a Taipei suburb, and rattles off the imported items whose cost should drop if Taiwan joins the WTO. He has already seen the price of a Washington apple decline from $2.20 to 31 cents because of market-opening measures and he predicts WTO entry would lower the price of American whiskey by one-third and Japanese rice crackers by at least one-fourth.

“The price of imported goods in Taiwan has been two or three times the original price because of high duties,” he said.